In the coming deflationary period, gold, silver, oil, real estate, etc will all drop signifivantly.
The collapse of the credit boom cannot be re - inflated by printing.
The debt that can never be paid back dwarfs what the Fed can print.
I see no reason to think that the current prices are being manipulated like that. I think fiat money isn't trusted, and that millions of people are placing a lot of faith (and value) into precious metals. The current price surge may not last forever, but seems (to me) to have fair longevity and a reasonable chance of increasing some more.
Real estate was the catalyst for the credit boom.
Why is a house ‘worth’ $300,000 when 30 yrs ago it was only worth $60,000?
The answer lies in what we have done especially for the past 20 yrs, that is, just about anyone who could sign their name could borrow $300,000...now if no one can get a loan, only cash buyers will be able to buy and that drives the price down.
Dont forget oil going from $147 to $37 in 5 months 2 yrs ago...
I agree with your premise that the ratio should shrink. But a broader discussion you should explore is the inflation vs deflation argument.
98% of the population is fighting the fear of inflation. But look at history, particularly the 30’s...
If we have deflation, nothing holds its value except greenbacks. Deflation will occur when the available credit shrinks, as it already has in the mortgage mkt...
Housing starts are at 19th century levels due to the huge bubble created by credit expansion.
historical base line of $10? The same reason why oil prices will never drop down to $3/barrel or bread prices dropping to 10c/loaf
Look up the annual production of silver, and the annual consumption. Do the math. It’s the first metal we are going to run out of completely, and the timeframe for this event is <10 years. The only thing that will take care of the problem is much higher prices, both to encourage production (although try getting a new mine permitted these days) and to discourage consumption at present rates. Although many uses for silver are quite inelastic; if a modern PC has a few dollars worth of silver in it, for a $1000 computer, if silver goes up a factor of 10, meaning that there would then be $20-30 worth contained within, it won’t significantly alter the price of the computer, meaning, people will still buy them, which means those silver users will still buy the metal even at $300 / oz.
Here's a good video comparing our predicament with Japan's Lost decade of Deflation and why ours is different now
Just go to the grocery store, it's clear which one is happening. Sure Real Estate prices have fallen, but only because they were ridiculously artificially overpriced for decades now.
As for silver and gold,
1) If the dollar collapses, what the prices are today isn't really going to matter much as Gold and Silver are going to be the only things that have value and preserve your wealth
2) Look at the crazy swings that happen in the stock market on a daily basis. It's clear there's a lot of manipulation going on. It can't go on forever. Sure it's also obvious that there's also manipulation with precious metals but if it all collapses, with PMs you a least something physical, while with stocks, bonds, currency, etc you have pretty pieces of paper
Buy and physically own gold/silver to preserve wealth. Gov has three options to deal with debt. Raise taxes, very unpopular and not in a recession; cut gov services, unpopular and finally print money and cause inflation. Third option is painless to the average Joe until he realizes the price rises eating away his savings and earnings. Politician will buy time before he gets heat from angry voters. Politicians will opt for inflating thru low interest and currency printing. The more paper money printed, the more your gold and silver will be worth in paper money over time. Recommend establishing a set time and set amount of money to buy gold/silver. Income average because one cannot predict the top and dips. I recommend silver over gold, and platinum over gold because both are below their historical ratios to gold. Also stock up on food, water, own a firearm with plenty of ammo, stock up on meds and have a get away plan if SHTF. For conservative investors 90 percent cash and 10 percent prec metals.
I consider myself reasonably well-educated on gold and silver. I have collected silver coins since 1965 when I had the gals who worked the cash registers at my HS cafeteria separate them out for me. I am neither a “dollar goes to zero” guy nor a “silver goes to $15000” guy. I like Ag & Au, I own both. I wish I had started buying gold circa 2001 when I started buying silver. I have a load of silver, much less gold. I am not buying much at these levels. I am not selling any. But since I won silver so cheap, I have no hesitancy buying a few ounces or a dozen silver dollars a pal of mine has a knack of finding out of estates. Any old time, I am ready to blow $200-$500 on silver, without any hesitancy.
What that means for someone who is new to owning either, today, I do not have any recommendation, except to BUY SOME. Buy a few coins. Don’t try to outsmart it. Among all the possibilities is the one that the metal is smarter than you are. See if you like owning it.
Couple of points:
1: The 16:1 silver/gold ratio, and ALL measurements “based upon US history” refer to a time in US history when the price of gold (POG) was *controlled* and thus not subject to free-market forces. There is the claim that this ratio also reflects the preponderence of Ag/Au in the earth’s crust. This is likely roughly true. So what?
2: Ag/Au are commodities, and as such, are subject to violent, violent price collapses. At any time. If you don’t like or want to be exposed to that, don’t buy any.
3: Of all the periods I would look to for parallels, I would not especially look to the 70’s/80’s. There was massive fear of, and actual inflation in terms of loss of purchasing power of USDs. While I do not rule that out, I concurrently and absolutely do not rule out (in fact I favor) DEflation, which would take the form of massive assets being dumped on the market. I believe that in whatever “schism” the fervent gold/silverbugs are preparing for (if that is what the particular one speaking to you is invoking) one will be able to purchase serious assets with green cash. By this I mean, I would not excessively deplete my green cash (and NOT credit!) in favor of Ag/Au. I would buy PMs prudently, not more than 25% of my assets, depending upon taste, but do not be cashless! IMO that could be a fatal mistake for the religious goldbugs.
These metals have run up substantially. I tell people, silver really did not decisively leave $10 behind until 2009. Silver spent 1/3rd of 2008 under $10. Under $10, silver is priced below its cost of production, no different than a slice of baloney for a penny. You cannot raise the cow, feed the cow, slaughter the cow, and get a slice of baloney to market for a penny. Likewise, you cannot mine an ounce of silver, smelt it, purify it, ingotize or coin it, and bring it to market for $10. I do not think that can be said for $31 or $32 silver. Additionally, if you look at 2002,2003,2004,2005,2006, silver took agonizingly long times to creep upwards. I remember the days in 2000-2002 when a 12 cent move in silver was gargantuan. World shaking. 3x a year, maybe. Most days it moved 3-4 cents. 7 cents was biggish.
All the silver/gold info you might be interested in is available at Mike Maloney’s site, goldandsilver.com. Good guy, I used to work for him. I also reco listening to Dave Morgan. Silver-investor.com.
IMO, the bottom line is that one cannot predict the future. The metals, again, might just be smarter than you or I. Silver hitting high prices brings out massive amounts of sterling flatware and junk jewelry to be scrapped. Additionally, all (well, almost all) miners sell bullion forward in the futures markets as a means of locking in prices and guaranteeing pricing for their current production. This creates a natural preponderence of short interest in the futures market, exactly the opposite of the natural bullishness of the stock market.
If you want to trade silver, the ETFs are vastly superior than trading physical because of the lack of trading friction, but they do not represent the same thing as owning the physical as they are not redeemable (for you and I) in physical. You get price exposure to the volatility (if that attracts you) Some people hedge physical holdings with the ETFs.
Don’t talk about PMs with people you know or come in contact with. Just don’t.
Here are a few important thoughts:
You are right about silver having a greater potential than gold because
a) it is found in the ground at about a 1/10 ratio compared to gold and the current ratio is around 1/50, and not too long in the past it has been at 1/16 for long periods of time;
b) silver is USED in industry. Even though it is found 10 to 1 in the ground compared to gold, it is used in many industrial applications, and therefore, most of what has ever been produced is now in landfills. However, it is used in such small amounts in any particular application, that it is usually not cost effective to find a way to recycle it. This is the opposite of gold, almost all of the gold that has ever been mined is still above ground and is not gone. The result is that the silver market is very thin, and any disruption in supply is bound to make it extremely expensive.
c) At higher prices of gold, silver is the poor man’s gold.
Many experts in historical human behavior have opined that the long term destiny of all fiat currencies (those not backed by anything, such as what we’ve had since we went off the gold standards) is to return to their natural worth, which is how much BTU’s you could get from them when you burn them! This is consistent with natural politicians’ behavior: you get to a point in your taxing that the population revolts. Inflation through printing on the other hand, is usually a hidden tax that is much easier to impose as people are usually ignorant of what is going on with their money. This is why I believe that gold and silver are actually quite cheap: Our debt is such that there is no way that we will ever repay it using current dollars. The government will have to inflate the dollar while keeping interest rates low in order to have a net decrease in the value of the dollar, and try to repay the deficit with cheaper dollars.
One important aspect that you would need to investigate more is the concept of the “physical” and “paper” markets in gold and silver. This is where in the past gold and especially silver have been artificially kept low thanks to a real conspiracy between the COMEX, the banks (JPMorgan is in the middle of a major lawsuit about this), and maybe the government. The first part is that it is alleged that the major ETF’s such as the GLD and especially the SLV are NOT backed 100% by physical gold and silver (some of the physical quantities get “leased out”.). Here’s a hypothetical example of how the manipulation may have worked in the past: say silver blew the roof off and went to $50. JPMorgan overnight at a time when the market is at its thinnest enters huge naked short positions in the “paper” market, effectively clobbering the price single handedly. The next trading day, the COMEX, its co-conspirator, raises margin requirements on silver. All the traders who were “long” silver using margin get hit by a double whammy of seeing their long positions get killed, and their margin requirements raised, forcing them to liquidate many of their long positions, forcing the price to plummet further. JPMorgan comes in at that time when the price is even lower, and covers their short position at a very low price. Voila! Instant millions of dollars.
The price that you hear that gold and silver are at, is the price quoted at the COMEX for the “paper” market. If you want to take physical delivery of the metals, you would probably have to pay a hefty premium as the paper market is being manipulated. When people stop buying the ETF’s and start taking physical delivery of their gold and silver, the manipulation game will be over, and the price on the COMEX will be disregarded as there will be two prices, the paper price on the COMEX and the real physical price.
If you are investing, the gold and silver miners got absolutely clobbered last year even though gold and silver have been rampaging. These companies are literally printing money, and once people lose faith in the ETF’s, they will want to buy gold in the ground and silver in the ground, especially from companies that are increasing their production (only some of the smaller players are doing that-the largest players are having a tough time replacing their reserves).
I hope this was helpful. Do you have any questions?